European Data Sharing Rules Rip Open Tech Development

Banks’ dilemmas around sharing data and embracing open payments technology are becoming a more urgent concern in Europe due to regulatory pressure, and fintech firms are starting to take notice.

But for banks in Britain, there's little time to wait as institutions already facing emerging new data-sharing regulations under Europe’s PSD2 now face a separate U.K. mandate pushing a similar agenda.

The U.K.'s Competition and Markets Authority (CMA) has directed 9 of the largest banks in Great Britain and Northern Ireland to begin building APIs within the next year to allow data-sharing with other banks and third parties in the name of price transparency and service quality. The CMA provided final requirements of the program in a report released last month, based on information gathered over the last two years.

The U.K. data-sharing requirements have ratcheted up existing pressure for Britain’s large banks, which include Lloyd’s, RBS, HSBC, Barclays and Santander, which already are obligated to follow through with PSD2 requirements by 2018 despite Brexit, analysts say.

Banks covered by the U.K.’s separate mandate must hit the first milestones for developing open APIs in 2017 and complete the process during the first half of 2018. One of the U.K. authorities’ immediate goals is to supply Nesta, a nonprofit organization, with resources to build a tool enabling U.K. consumers to compare major banking products based on banks’ actual customer data, the CMA said.

To get the ball rolling, Nesta this month announced plans to soon launch a fintech competition with a “multi-million-pound” prize for developing an effective API-based product-comparison tool for the banking industry.

“Every bank in Europe has to comply with PSD2, and because virtually no bank in Europe currently utilizes APIs, there are banks everywhere working to figure out how they can do this,” said Gareth Lodge, a senior analyst at Celent.

Though final specifications for PSD2 won’t be available for months, U.K. banks are scrambling now to find ways to quickly develop “a much richer and broader set of APIs” within the next year, Lodge said.

Not surprisingly, a number of fintech and consulting firms have spotted business possibilities in the situation and are developing solutions and services, including U.S. firms.

Redwood City, Calif.-based Token Inc. launched last year initially planning to create general products for the API ecosystem, but this year the company shifted its focus to Europe, with an eye to helping banks streamline their efforts to comply with regulations around PSD2 and in the U.K., said Steve Kirsch, the company’s founder and CEO.

Last month Token opened an office in London, where it sees immediate opportunity to work with U.K. banks developing APIs.

But Kirsch believes European banks can go beyond merely complying with authorities on data-sharing and actually monetize their data resources by participating in a broad platform supporting interoperability among banks’ data-management apps, he said.

“We’re creating a system that’s akin to the World Wide Web for apps, making it easy for various apps to access the banking system, instead of each bank creating a costly data-sharing system that exists in its own silo,” Kirsch said.

Token’s solution hinges on technology enabling banks to encrypt customer data for PSD2-compliant transactions within “smart tokens” that can also be used to streamline e-commerce checkouts, P-to-P transactions and bill payments, Kirsch explained.

The company believes its smart tokens, which will work worldwide, will provide additional advantages by avoiding the risks of virtual currencies and enable banks to move money globally at low cost, he added.

“Banks should be finding better ways of sharing their data so they can control and monetize it, and we believe that if banks host this data in a way other parties can access it, they will be in the driver’s seat for sharing data,” Kirsch said.

So far Token is working with one undisclosed U.K. bank to develop its solution, and though it’s too soon to release further details, a number of other banks are showing interest in the project, Kirsch said.

Kirsch leads a team of a dozen executives in the U.S. and U.K. He previously built and sold several other technology companies including one of the earliest Internet search firms, Infoseek, and desktop publishing company FrameMaker. Kirsch is also credited as one of the key inventors of the optical mouse, still widely used with PCs.

“The pressure on banks to share their data is rising everywhere in the world, and the range of apps that are becoming available will make banks want to participate in this, even if they’re not required to,” Kirsch predicted.

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